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Advisor Spotlight
An IFA who tried to approach the Finance Ministry to place his views on the SEBI consultation paper
Mr Amit Jain

Mr. Amit Jain of Aadi Wealth Management, Delhi who is a part of the Birla Sun Life IFA Advisory Council, had taken the initiative of representing to the finance ministry with regards to the consultation paper issued by SEBI.

His views on the same:

“While coming up with any regulation, SEBI is missing out on the practical aspect. This is especially so when we speak about the consultation paper. The suggestive regulations listed out in the consultation paper are an area of concern for the IFA community. What is absurd is that we are expected to do the same work which we have been doing for years, but suddenly we will not be qualified for doing the work we have been doing. For example: Is it necessary to pass out from IIT to become an engineer? You can call yourself an engineer, irrespective of the college you have passed out from, unlike in the MF advisory space.

The paper is not in favor of advisors and hence not in favor of investors. The regulator, however, does not seem to pay attention to any representations made to it, and we have seen this in the past. We should get in touch with the higher authorities like the finance ministry or the PM office. “

MF Live: So have to put forth your views about this obstacle anywhere?

Amit Jain: Yes. In fact, I have shared it in many different forums. They have taken consideration and are trying to get in touch with the PM office. 

MF Live: What we discussed is from the representation point of view. On the other hand, how do IFAs align their practices in this kind of situation? There must be some contingency or emergency planning they have at hand.

Amit Jain: IFAs are in a fix. They are unable to decide their further actions because they are left with very few choices. The business is threatened because of the RIA model. 

1)We will not be able to advise customers, which will stop the customers from investing with us. 
2)Our infrastructure will not be able to stand. 
3)A lot of uncertainty with regards to the business and does not look attractive.

SEBI is not thinking along the lines that investors should get good products. SEBI is not taking investor-friendly initiatives; rather these initiatives are drastically destructive because they take away the service the customers receive. Without service, how is it possible to make moves in this volatile market. 

MF Live: There is one thing I’d like to understand. SEBI has said you’ll receive trail commission if you become a RIA. Few IFAs who have already converted into RIAs, have done two things. One, they have a complete advisory in their name. Another thing is, they have set up a different entity where distribution takes place. So the commission is received in the distribution sector, and advisory fees are taken care of in your advisory. Isn't it viable enough? 

Amit Jain: In the long term, SEBI will come up with something different. I do not understand the logic behind having two separate things when one person is running the show. SEBI might someday turn its back and say that these are two things led by the same person which is not sensible. Hence RIAs might not be able to run both of them together, and they might be prohibited from leaving the distribution sector at all.

We need to address the cause of the problem instead of solving the problems at hand temporarily only to come across the same situation again. Right now, we should unitedly reach out to the PM office and speak against this order of SEBI, because if it gets implemented, it is going to cause problems for us.  

What the SEBI does is, it first introduces the plan and then aggressively tries to implement the plans. First, they introduced the Direct Plan. Now, they are aggressively marketing the plan through AMCs. In this case, the problem is going to worsen, especially after 3 years. 

MF Live: A lot of people say that if investors go direct, they need to have the knowledge and time to look for funds which suit them. This even applies to online decisions. Thus IFAs are not bothered with direct plans as much because, in direct plans, one will not receive the advice of the IFAs which may land them in making wrong decisions. So does direct still affect?

Amit Jain: The thing is there are different segments: corporate segments, HNI segments, and retail segments. What you said, applies to retail segments. In HNI segments, the investors are very smart. They take advice and invest only about 5 or 10 percent of their funds through the ARN. Other than that, they invest directly according to your advice which is a win-win situation for them. In a year’s time, they will probably take suggestions from you every month, but you will receive the money only twice or thrice a year, and you cannot do anything about it.  

In corporate segments, they have managed to build up a team of people who have gained knowledge from IFAs in the past and can manage portfolios. Thus, they invest directly and do not need the IFAs any longer. 

You can see that 70% of our liquid money is invested directly. 

MF Live: Your Final thoughts?

Amit Jain: We need to be able to reach out to the higher authorities. We need to inform the finance ministry that SEBI's actions and plans are harming the industry. The direct plan has not been profitable for the industry, and we cannot afford the implementation of the RIA model. It is unnecessary and inadvisable. 

Also, in international markets, there are hefty fees for advisory. You cannot apply that kind of norms in India because it is missing in the environment. There is no sense behind copying the system of other countries because there is a significant difference between the economy of India and the economies of other countries.

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Comments Related To This Article
  • Name : Sam Koshy
  • Comments :
  • Mentioned all important things except some.Try to include the below points: 1) To implement only trail commission model across all fund houses and products with a minimum trail rate. 2)Seggregate transaction only distributors from advisors at the remuneration level.
  • Date : 5/19/2017 7:21:55 AM
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